Arkansas is engaged in an aggressive tax-cut effort that has reduced the top rate from 7 percent to 3.9 percent since 2015. Has this led to a sharp drop in state government revenue?

It has not. Since 2015, Arkansas’s per capita state revenue stayed relatively flat—with an increase of 1.7 percent when adjusted for inflation.

Sources: Arkansas Annual Comprehensive Financial Reports; U.S. Bureau of Labor Statistics, CPI Inflation Calculator

When you exclude federal funding, Arkansas’s per capita revenue fell by 1.8 percent or $75 per person. These data do not include the current year, in which Arkansas has an even lower tax rate of 3.9 percent.

Sources: Arkansas Annual Comprehensive Financial Reports; U.S. Bureau of Labor Statistics, CPI Inflation Calculator

Arkansas now has a lower rate than Oklahoma. Moreover, Arkansas has begun to attract more people than Oklahoma. According to data compiled by the Tax Foundation, Arkansas ranked higher than Oklahoma in the past two years in terms of interstate migration. 

Those familiar with the research on income taxes are not surprised by Arkansas’s experience. Research has shown time and again that lower income tax rates lead to more economic growth, with higher incomes and more people moving into the state. Arkansas’s median household income has grown by 17.6 percent, or $9,500, since 2015. This allows a state to cut its rates without leading to severe revenue shortfalls that tax cut critics often predict. 

Arkansas has proven that you can let people keep more of their own money without sacrificing core government services.